Network Marketing Costs and Commissions

As a solo ad provider, affiliate marketer, web host, and consultant I talk to a lot of people that are members of various network marketing opportunities. I’ve noticed a common thread in their situations that is directly related to their success, or lack of success. I’ll get to that soon, but first I want to explain something about network marketing costs and commissions.

Your “Position”

With network marketing opportunities it’s typical for you to “buy in” at a certain level. The buy-in costs for these levels vary widely across different networks. From trial subscriptions that cost just a few dollars per month, to top tiers that require total investments of $30k or more.

The level that you buy in to is your “Position” and it dictates the commissions that you make when you sell a membership for your company’s network. Lower positions make lower commissions. Higher positions make higher commissions.

Many of these companies are two- or three-tier networks. This means that you make a commission when someone on your team (your customers, your downline) makes a sale.

Does that all makes sense so far? Because here’s where it gets interesting.

Network Marketing Costs and Commissions

For you to get your sales, you need to bring traffic to your affiliate sales pages. Now you could try to get organic traffic. Maybe from your blog, from Facebook posts, or calling everyone under the Sun that will listen to you. But that will take forever and may not work at all. So you do what we all do. You pay for targeted traffic. Solo ads for example. To buy traffic you need money and you probably want to stay within a budget.

Let’s look at three hypothetical scenarios where you have an investment budget of $16,000.

You position yourself the company for $15k and qualify for top-tier $3000 commissions. You spend your remaining budget of $1000 on 1500 clicks. (A click is a visitor to your sales funnel). If we assume a typical 1% sales conversion rate then you get 15 sales at various levels that you’re qualified for. Most will be the lowest level. Maybe some are mid-tier. There’s a chance that one or two could be top tier, but it’s not likely with only 15 sales. Just to break even on $16k investment you’d need to average $1066 per sale. (16000 ÷ 15) Since you’ve spent your budget you can’t buy any more traffic without going over your budget.

You position yourself for $3k and qualify for $1000 commissions. You spend your remaining $13,000 on 20,000 clicks. Assuming a 1% conversion rate you get 200 sales at various levels. Most will be lowest level. You aren’t positioned for the top-tier commissions, so if someone buys in at the higher position then you won’t get the commission. But since you’ve made 200 sales you have a much better chance of making multiple $1000 mid-tier commissions. To break even on your $16k investment you need to average $80 per sale. (16,000 ÷ 200) Totally possible, if not very likely on 200 sales. Much more likely than averaging $1066 per sale.

You position yourself for $47 per month for 1 year ($564 total) and you qualify for lower-tier $33 commissions. That’s not a big commission, but you have a lot of money left over for traffic. You spend your remaining $15,436 on 24,000 clicks. Assuming the same 1% conversion rate you make 240 sales. To break even on your $16k investment you need to average $66 per sale. (16,000 ÷ 240) Not very likely since you only qualify for $33 commissions.

Now I want to you analyze these three scenarios. Which is the most likely to make you a profit? I don’t care about revenue or total sales, or just breaking even. I’m talking about profit.

I know people in scenario 1. They’ve invested tens of thousands to dollars to position themselves with their company, but they’ve only sent a few hundred clicks to their offer. And now they’re now broke. They didn’t break even, and are actually thousands in the hole.

I also know many people in scenario 3. They’re spending lots of money on traffic, but they’re not making a profit because the commissions are small. But at least they aren’t over-invested and can stop their ad spend if they choose to. But at least they took a chance and stuck their toe in the water to see if the program was something that would work for them or not. They can choose to up their position if the want to.

My vote is for #2. This scenario is a good balance between commissions and ad spend, and it has the highest chance of turning a profit.

The Downline or “Team”

There’s another thing to consider when you make sales. Those customers are your downline. Your “team”. They’re in the same position you were when you started. They’re facing the same decisions about position that you were. What they can afford to invest. Where to get traffic, and how much to spend on it.

But remember I said that with multi-tiered networks you get a commission when someone on your downline makes a sale? That’s right. If they make a sale in your company then you get a commission without doing anything! However you likely will only get the commission if you’re positioned at least as high as the sale they made. If you’re not positioned correctly then the commission passes you by and goes to the affiliate that you joined under. (Assuming they’re positioned correctly.)

For example, let’s say you’re positioned with the monthly option 1 above. Now someone on your team positions themselves at option 2. Because this is “higher” than your position then you won’t get a cut of the commission. Bummer! Instead the commission goes to your sponsor. The person in the company that joined under.

Some people will decide to up their position in their company just so they don’t miss out on the higher commissions from their team sales. That’s fine if you choose to do that, but don’t forget to do the math on the position! The sales on the higher positions are less likely because of the expense. But they pay higher commissions than the lower positions.

I said that you get the commission without doing anything. But that isn’t totally accurate. It’s in your best interest for your team to remain active so they can get sales, because you get a commission when they make a sale. So as your team grows your role may expand from getting traffic to supporting your team. You will start to take on the role of leader, trainer, and mentor. Some people are very comfortable in this role and their teams thrive. But some aren’t and their teams don’t really come together. If you’re not comfortable in that role then you should look to your leaders and mentors. What do they do and say that excites and energizes you? Learn from them. Do what they do, and say what they say. But in your own voice.

The Hidden Value

Now here’s where it gets really interesting. Up to this point I’ve been talking about sales. But before sales you have engagement.

The people that come to your funnel will typically see a landing page where they give you their email address. In scenario 2 you brought 20,000 people to your funnel. Let’s assume that 35% of them opt-in to your mailing list. That’s 7,000 people that have shown interest in what you’re selling. Some will buy right away, or from the up-sells. That’s the 1% conversion in the above scenarios.

But now you have 7000 people that you can market other products and services to. Maybe you’re part of another network marketing opportunity. Maybe you’re an affiliate for a training program. Maybe you’ve developed your own product.

Do you think that any of those 7.000 people would be interested on the other stuff that you have to offer? Because you now have 7,000 leads that you don’t have to pay for again. If you can get a 1% conversion rate from the 7,000 leads, then that’s another 70 sales you could make over and over. That lowers your overall cost per lead, and increases your return on the initial investment in traffic.

The Take-Away

Of course I’m making assumptions here about network marketing costs and commissions, percentages, and your investment ability. But I hope you get my point.

Your position and your commission potential do not matter if you don’t have money to spend on traffic!

And all the ad spend in the world won’t make you a profit if your commissions are too small.

So before you invest into an opportunity, or decide to upgrade in the network you’re already part of, put some serious thought into your choices.

Get all of the information that can can about your network marketing costs and commissions. Research traffic prices. Run the numbers. Run them again. Make damn certain that your decision is the right one for you.

If you do all of that and it makes sense then great! Go for it! At least you’re going in with your eyes wide open and you can make a smart and informed decision.

If you want to be in Scenario #2 I can help. I have access to the right networks, with good commission to investment ratios.

I can help you get good traffic to make those commissions.

I can help you with your sales funnels, your pages, your email campaigns, tech stuff, web hosting, and a myriad of other things that you need to make your business successful.